New Fringe Rate and Existing Contracts: What to Know

Increase in Fringe: How does it affect you?

Complying with prevailing wage laws and fringe benefit regulations is a must for any government contractor. With the recent release of the All Agency Memorandum no. 225 last July 25, you may be wondering how it impacts the existing provisions under the Service Contract Act.

To guide you on the new fringe rate and existing contracts, here’s what you need to know.                                                                      

Updating the New Fringe Rate

The Wage and Hour Division of U.S. Department of Labor released the All Agency Memorandum Number 225 was released last Jul 25 2017 by the. It provides the yearly update on the Service Contract Act Health and Welfare Fringe Benefit.

The memorandum covers all contracting agencies of the federal government and the District of Columbia. The latest update mentions a change in the rate under SCA for 2017. Specifically, the prevailing health and welfare fringe benefits rate issued under the SCA is now increased to $4.41 per hour.

Calculating the Fringe Benefit Rate

The change in rate still follows the regulations prescribed under the McNamara-O’Hara Service Contract Act. The fringe benefit rate is taken from the most current Bureau of Labor Statistics Employment Cost Index (BLS ECI), summary of Employer Cost for Employee Compensation (ECEC).

Implementation Guidelines

The memorandum specified that the new higher health and welfare benefit rate was effective August 1 2017. Last August 1, the updated benefit rate was posted on the Wage Determinations Online website (www.wdol.gov) and the Wage and Hour Division website (www.dol.gov/whd).

The released All Agency Memorandum Number 225 does not provide further guidelines on how the fringe benefit rate change will be applied.

The posted updated wage and fringe benefit determinations do not automatically apply on existing contracts agreed upon prior to August 1.  The posted rate will only apply when the new determination is modified into the contract.

Modifying Existing Contracts

The contracting agency should initiate the process of modifying existing contracts to accommodate the new wage determination. This process is covered by the Federal Acquisition Regulation (FAR), the Fair Labor Standards Act, and the Service contract Labor Standards – Price Adjustment.

­Under 52.222-43 Fair Labor Standards Act, the contract price, contract unit price labor rates, or fixed hourly labor rates may be adjusted to comply with any increase or decrease in the wage. Otherwise, it is deemed applied by operation of law.

For firm-fixed price and labor-hour contracts, the contracting agency should initiate the process of adjustment prior to the anniversary date of multiple year contracts, or at the beginning of the renewal option period. By either of those times, the contract should reflect the updated wage and fringe benefit determination.

Ensure Service Contract Act Compliance with ARCHER JORDAN

Navigate and adjust for the updated fringe benefit rate with the help of experienced and expert professionals. As a third party administrator providing fringe benefits to government contractors and hourly hires, ARCHER JORDAN can help you ensure your compliance with the 2017 Service Contract Act health and welfare fringe benefit rate.

Our decades of experience can help you smoothly transition to the new rate in a timely manner. Contact ARCHER JORDAN today!